Today: Music Biz Association Panel: Buyer Beware: What Does the Legal Future Hold for TikTok?

Chris Castle will moderate a panel entitled “Buyer Beware: What Does the Legal Future Hold for TikTok?” as part of the Music Business Association’s Entertainment & Technology Law Conference today at 1:35 pm ET.  Sign up here, registration fee is required.

The all-star panel has experts from inside and outside the music business:

  • Rick Lane, CEO, Iggy Ventures, LLC
  • Gwendolyn Seale, Attorney, Mike Tolleson & Associates
  • David Sterns, Partner, Sotos Class Actions
  • Trent Teyema, Principal, Global Threat Management

The panel will discuss the legal basis for the TikTok sale and potential ban as well as TikTok’s massive infringement problems.  The focus will be on understanding how we got here and what exposure TikTok will have even after a sale.

If you can’t make the panel, Chris has promised to make the panel materials available next week.

Crouching Tiger, Hidden Dragon: Broad and Antiquated CDA 230 Immunity for TikTok Could Aid China’s Secret Efforts to Undermine U.S. Cyber-Security: Guest Post by Rick Lane

I believe there are only two public policy issues that President Trump and Vice President Biden agree upon: The status quo of Section 230 of the 1996 Telecommunication Act is no longer acceptable; TikTok is a threat to our cyber and national security.

Interesting enough, these two issues are interlinked. Section 230 of the Communications Decency Act (CDA 230) gives free reign to Internet platforms operating in the United States to act with impunity as it relates to user generated content. Predictably, this has led to unintended and destructive consequences. But, left unsaid is what Big Tech doesn’t want anybody to realize – CDA 230 also unwittingly shields China as America’s top geopolitical adversary challenges U.S. national and economic security right here at home.

According to Bloomberg, Chinese-controlled “ByteDance/TikTok, led by Zhang Yiming, is becoming a viable rival to the dominant American online behemoths, Facebook Inc. and Alphabet Inc..” Last year, TikTok’s net profit was approximately $3 billion and the company estimates that it has about 80 million monthly active users in the United States, 60% of whom are female and 80% fall between the ages of 16 and 34. Of particular concern is that 60% of TikTok users are Gen Z, which is the largest generational cohort in American history and will include 74 million people next year.

As a champion of free markets, I would normally be among the first to applaud an upstart bringing a competitive “A” game to challenge dominant incumbent players no matter where they are based. But we have learned from experience that homegrown social networking companies like Facebook/Instagram, Google, and Twitter exert dominant and controversial influence in U.S. public policy debates – what sort of foreign influence should we expect TikTok to exert on this year’s election.

Lately, I’ve found myself asking should I really be concerned?

A recent article by Larry Magid was the tipping point for me in this debate. The headline of the article was, “How A 51-Year-Old Grandmother and Thousands of Teens Used TikTok to Derail A Trump Rally & Maybe Save Lives.” Magid lays out the series of events illustrating how attendance at a Trump rally was manipulated by a viral video of a grandmother from Iowa. It sounds innocent enough until you realize that the inflated numbers of expected attendees started when fans of K-pop, the popular Korean music genre, ordered free rally tickets from the Trump campaign with no intention of actually attending. Next, according to the article, the “grandmother from Iowa” posted a video on TikTok urging her mostly young viewers to “Google two phrases, ‘Juneteenth’ and ‘Black Wall Street,’” before also suggesting that they register for two free tickets to the Trump rally. Her video post went viral and motivated young TikTok users to request hundreds of thousands of tickets.

After reading this, I was left with a simple question: Whether Trump or Biden, doesn’t it bother anyone else that a Chinese-controlled social network was used to interfere with an American presidential campaign event at the same time that tensions between our two countries are escalating? Even Vice President Biden has banned TikTok from campaign phones and computers. As Mr. Magid’s article acknowledges, “(i)t’s long been known that social media can have a huge impact on politics. That’s why Russia tasked a state-run agency to flood social media with posts and ads to get Donald Trump elected.”

Two additional facts build on the story told by Magid. Another recent article, titled “Anonymous Hackers Target TikTok: ‘Delete This Chinese Spyware Now,” states that TikTok is “a data collection service that is thinly veiled as a social network. If there is an API to get information on you, your contacts, or your device, they’re using it.” The other fact to connect is that the key driver for algorithms and artificial intelligence, especially when dealing with human behavior, is vast data on human interaction. It is one of the main reasons that Microsoft is so interested in buying TikTok.

So now we are confronted with a Chinese based “social networking” site growing more rapidly than any homegrown US competitor and collecting more data on our youngest and most easily influenced demographic at the same time that China, Russia, and Iran are using social networks to undermine our democracy. Let’s not forget that this social networking site has been proven not to be secure and agreed to pay $5.7 million to settle Federal Trade Commission (FTC) allegations that it illegally collected personal information from children, the largest civil penalty ever obtained by the FTC in a children’s privacy case.

But most alarming is that TikTok is protected by CDA 230 and cannot be held accountable for the actions of its “users” even if those “users” happen to be foreign governments. For example, if the Chinese government is leveraging TikTok for its own strategic advantage, the US government has no recourse against TikTok for these activities. The impunity provided by CDA 230 to TikTok, as well as Chinese and other hostile governments, directly threatens our democratic process. Even more troubling is the fact that TikTok, along with Facebook and other social networking sites, cannot be held responsible for illegal conduct occurring on their platforms – even when they know about it.

Besides the potential of interfering with our elections, TikTok also continues to facilitate the sale of illegal drugs. Below are three screenshots of illicit activity being perpetrated on TikTok. The first two images show illegal drug sales of opioids and the other shows illegal drug sales of steroids. Remember, TikTok’s core demographic and the intended audience for these posts consists primarily of members of Gen Z, those born between 1995 and 2012 –our children.  [Similar to Google’s near-indictment and $500,000,000 fine for violating the Controlled Substances Act.]

(Screenshots Provided by Eric Feinberg)

I will leave you with a quote from a recent speech at the Hudson Institute by FBI Director Christopher Wray. He stated:

“The Chinese government is engaged in a broad, diverse campaign of theft and malign influence, and it can execute that campaign with authoritarian efficiency. They’re calculating. They’re persistent. They’re patient. And they’re not subject to the righteous constraints of an open, democratic society or the rule of law… China, as led by the Chinese Communist Party, is going to continue to try to misappropriate our ideas, influence our policymakers, manipulate our public opinion, and steal our data. They will use an all-tools and all-sectors approach—and that demands our own all-tools and all-sectors approach in response.”

For addressing this clear and present danger, the United States must modify CDA 230 and ensure that we have all the tools necessary to hold TikTok accountable for criminal activity that occurs by “others” on their platform. Importantly, this includes illegal actions taken by the Chinese government to misappropriate the site, and the massive amounts of data it collects, in order to inflict harm on the US and its allies. Finally, we must avoid inadvertently making this problem worse by spreading the excessively broad and antiquated immunity of CDA 230 through trade agreements with other countries.

Rick Lane is the founder and CEO of IGGY Ventures. IGGY advises and invests in technology startups and public policy initiatives that can have a positive societal impact. Rick served for 15 years as the Senior Vice President of Government Affairs of 21st Century Fox. Before joining Fox, Rick was the Director of Congressional Affairs focusing on e-Commerce and Internet public policy issues for the United States Chamber of Commerce.

The MLC Posts its By Laws

The MLC finally posted its “by-laws” that gives some insight into its operations. For a non-profit like The MLC, Inc., the by laws are essentially the operating rules of the corporation.

Typically, a non profit’s by laws cover issues like the purpose of the organization, the location of offices, the general governing structure, the number of governing members (like the board of directors) and the process for the selection, election and removal of members, terms of service for governing members, qualifications for those serving to govern the organization, methods of conducting business and organizational policy statements, meeting times and dates (usually a minimum of annually), limitations of the organization and its governing body and its fiscal year (for accounting and reporting this has to be a twelve month period).

The MLC’s by laws have all these typical components, but also have an acknowledgement of the oversight role of the Copyright Office and the Librarian of Congress as required by Title I of the Music Modernization Act.

One thing is a bit unusual about The MLC’s by laws given that it was sold to songwriters by the NMPA on the basis that “the services pay for everything” is the broad indemnification clause in Article VIII of the by laws. What this means is that The MLC is going to cover the costs if any “Person” gets sued or criminally prosecuted:

Neither the Members nor any Director of the Collective shall be personally responsible for monetary damages for any action taken, or any failure to take any action, provided however, that this provision shall not eliminate or limit the liability of any Member or Director to the extent that such elimination or limitation of liability is expressly prohibited by applicable law, as in effect at the time of the alleged action or failure to take action by such Member or Director.

The Collective shall indemnify any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such Person is or was a Director or Officer of the Collective, or is or was serving any other corporation or any partnership, joint venture, trust or other enterprise, in any capacity at the request of the Collective, [that means HFA] to the fullest extent and in the manner set forth in and permitted by the DGCL, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which such Director or Officer may be entitled apart from the foregoing provisions.

(b) The Collective shall pay expenses (including attorneys’ fees) incurred by a Director or Officer of the Collective referred to in Section 8.4(a) of this Article VIII in defending or appearing as a witness in any civil or criminal action, suit or proceeding described in Section 8.4(a) of this Article VIII in advance of the final disposition of such action, suit or proceeding. The expenses incurred by such Director or Officer shall be paid by the Collective in advance of the final disposition of such action, suit or proceeding only upon receipt of an undertaking by or on behalf of such Director or Officer to repay all amounts advanced if it shall ultimately be determined that the Director or Officer is not entitled to be indemnified by the Collective (which undertaking need not be further secured).

Wonder where that money is going to come from?

#ShowUsTheMoney: Guest Post: @CopyrightOffice Regulates the @MLC_US: Selected Public Comments on MLC Transparency: Chris Castle

[This is an except from Chris Castle‘s June 7 comment to the Copyright Office regarding the transparency of The MLC. You can read the entire comment here. Although The MLC has launched its “Data Quality Initiative” to great fanfare, that DQI process merely confirms how bad the HFA database is since there still is no MLC database as required by law. Since there’s no indication of when The MLC is going to launch and there is a strong indication that nobody in power is doing anything about it (looking at you, Copyright Office), this is a particularly timely excerpt. Remember you heard it here first if your mechanical royalty statements drop to zero once The MLC takes over on January 1. That is 113 days from today and we have yet to seen a thing from The MLC and we have no promise of when we will see anything. Given that there has been zero investigative journalism on this topic from industry outlets aside from “how does The MLC withstand its own awesomeness” the comments that we are serializing are about all you’re going to get in the way of transparency.]

Quality Control of The MLC’s Operations and Platforms

There is an immediate need for The MLC to demonstrate that its systems actually work.  That need will be ongoing, so it would be well for the Office to promulgate regulations requiring a periodic public demonstration of the operability of The MLCs systems, a frequent public disclosure of bugs and bug fixes, and a frequent public disclosure of any missed payments or other glitches.  These matters are appropriate for the transparency of The MLC because if either The MLC or another MLC are not required to disclose these items, no one may ever know there was a problem (but see the discussion of whistleblowers below).

In considering the timing, I would caution the Office against thinking in years rather than weeks.  There is a tendency to think about these things in annual or more time periods.  This will prove to be a mistake given the scale and volume of transactions.  Would you tell Visa it only need to confirm the integrity of its fraud detection systems once every three years?  Or should it be more frequently?  Financial services is a good corollary for streaming mechanicals, with the exception that the royalty payable for each stream starts several decimal places to the right unlike credit card transactions.

There is an immediate need for this transparency.  Recall that MLC executive Richard Thompson said at the Copyright Office panel on unclaimed royalties last December, “[A] lot of the time since July has been spent working very closely with the staff at HFA and ConsenSys, really starting to nail down how all of this is going to work at the, you know, lowest operational level, all of the things that we need to work out.”  (Referencing the July 8, 2019 designation of The MLC as the MLC.) [1]   

Of course, The MLC didn’t announce the selection of HFA and ConsenSys until November 26, 2019[2] and was evidently still interviewing vendors up to that date.  Even so, I’m sure The MLC has been hard at work on developing their platform.

Mr. Thompson also stated at the December 2019 panel:

So our current timeline has the first version of the portal going live late Q2, early Q3, of next year [i.e., 2020]. I emphasize again that is the first version. That will not be functionally complete. It will have the, you know, the first set of functionality that we want to make available to the rightsholder community. So in particular, sort of, being able to look at your catalog, manage your catalog.[3]

Late Q2 to early Q3 is now.  [As of this post, it is the end of Q3 and we still have nothing but Mr. Thompson still has a job.] To my knowledge, The MLC has made nothing available for songwriters to know what is going on at The MLC or how to start registering works. 

Mr. Thompson also stated:

“You know, the first version of the portal doesn’t have statementing on it, because we won’t need statementing until 2021, you know, the first quarter of 2021.”[4]

I would respectfully ask the Office to determine what happens if The MLC is not able to render statements on time.  Presumably the income from streaming mechanicals that had been paid by the services directly to songwriters or music publishers would be transferred over to The MLC as of the License Availability Date (currently January 1, 2021).  If that transfer occurs and The MLC is not then ready for “statementing” (or, presumably, its corollary, “paymenting”) for the billions if not trillions of streaming transactions for all the world’s music in less than a year’s time from today, then streaming mechanical royalties could drop to zero until The MLC could handle both statementing and paymenting.[5]

While Mr. Thompson seems to be focused on the Q1 2021 distribution date for royalties payable in the normal course, the other significant statementing and paymenting date is July 1, 2021 when the first unmatched distribution is to be paid under Title I.  There are also the obvious and expressly stated “public notice of unclaimed royalties” reporting requirements for The MLC’s public facing website listing all unmatched songs (or shares of songs) and publicity efforts for the unmatched.[6]  This provision, too, is glitchy, but  presumably will come into effect soon.  I realize there may be some side deals cut regarding extending that statutory payment date, but it would at least be a confidence building exercise to know that The MLC could make the unmatched payment as of the statutory date if called upon to do so. 

Songwriters have very little visibility into The MLC’s operations except what came out at the Copyright Office panels, for which I am grateful, and also various interviews.  There is little substantive information in the press, and even less on The MLC’s website.  Therefore, it would be very helpful if the Office could require The MLC to demonstrate to the public how its platform is to function.  Such a demonstration might bring helpful suggestions from their peers or the ex-US CMOs that have been operating for decades.

It would also be helpful if the Office promulgated a bright line regulation that told songwriters around the world if the July 1, 2021 goal posts have moved and if so where they have been moved to.  I must say I have somewhat lost the page on this, given former Register Temple’s last testimony to the House Judiciary Committee about who has agreed what on delaying distribution.  This rulemaking would be a great opportunity to tell the world if and how the insiders have decided to change the law.

As the House Judiciary Committee stated:

Testimony provided by Jim Griffin at the June 10, 2014 Committee hearing highlighted the need for more robust metadata to accompany the payment and distribution of music royalties….In an era in which Americans can buy millions of products via an app on their phone based upon the UPC code on the product, the failure of the music industry to develop and maintain a master database has led to significant litigation and underpaid royalties for decades. The Committee believes that this must end so that all artists are paid for their creations and that so-called ‘‘black box’’ revenue is not a drain on the success of the entire industry.[7]

Having accomplished their goal through compulsory legislation, we are all watching the database cadre get to work and looking forward to learning how it is done from their teaching.

Alternatively, as is widely suspected among some songwriters I have spoken to, The MLC might rely on HFA’s statementing and paymenting functionality to limp along by sending necessary but not sufficient statements to HFA publishers or publishers that HFA can match.  This would be, essentially, the same process that got a couple of HFA’s licensing clients sued repeatedly, and ironically led to the Title I safe harbor in the first place. 

Absent proper transparency in the runup to the License Availability Date, any sudden drop in revenue would catch songwriters by surprise.  In the time of the pandemic, such a sudden contraction of income could be even more devastating than usual.[8]

Transparency would help shine sunlight on that problem.  While The MLC may give interviews and appear on panels describing their activities, we should remember the words of the great Bruin John Wooden who cautioned that we should not mistake activity for achievement.  If you practice free throws by yourself all weekend, it doesn’t mean you’ll be a better player with the team at Monday practice—or that the team is any more likely to win when it is game time at Pauley on Saturday.


[1] Transcript, United States Copyright Office Unclaimed Royalties Study Kickoff Symposium (Dec. 6, 2019) at 28 ln 15 hereafter “Kickoff Transcript”.

[2] Tatania Cirisano, Mechanical Licensing Collective Selects Leadership, Partners for Copyright Database, Billboard (November 26, 2019).

[3] Kickoff Transcript at 40 ln 2.

[4] Kickoff Transcript at 40-41.

[5] It is well to note that such a contraction probably would not affect direct licenses or HFA’s modified compulsory licenses.

[6] 17 U.S.C. § 115 (d)(3)(J)(iii).

[7] House Report at 8.

[8] Songwriters are already expecting lower royalties in January 2021 according to BMI’s President and CEO Mike O’Neil: “[We] anticipate an impact in January 2021, when today’s performances and corresponding licensing dollars (2nd quarter 2020) will be reflected in your royalty distributions. While you may see a lower distribution that quarter than you might typically receive under ordinary circumstances, given BMI’s business model, we have the time and ability to plan for this outcome.” A Message from Mike O’Neil, BMI.com (April 7, 2020) available at https://www.bmi.com/news/entry/a-message-from-bmi-president-ceo-mike-oneill-regarding-royalty-payments

#ShowUsTheMoney: Bringing Eyesight to the Willfully Blind: @SGAWrites and Society of Composers & Lyricists @CopyrightOffice Proposal to Bring Transparency to Secret Deals — Artist Rights Watch

[Editor Charlie sez: Remember how the MLC was supposed to bring transparency to the vast black box? Remember how we were skeptical? Here’s an excerpt from the important joint comment by the Songwriters Guild and the Society of Composers & Lyricists to the Copyright Office about how to address the previously secret deals between digital music services and publishers (called the “Negotiated Agreements”. Read the full comment here.. The robbery in plain sight may have already begun.]

With potentially hundreds of millions of dollars in songwriter and composer royalties at stake now and in the future, and in light of the profound lack of transparency surrounding these issues, we believe that the following questions should be openly addressed, answered and acted upon by the USCO as expeditiously as possible: 

(i) What do these individual, Negotiated Agreements actually state? 

(ii) What efforts (global and US) were undertaken by the DSPs and/or the music publishers to identify the true owners of the musical compositions that were the source of the unclaimed/unmatched royalties purportedly being dealt with in the Negotiated Agreements? 

(iii) Were the sums received by music publishers under these Negotiated Agreements (whether purportedly associated with unclaimed/unmatched royalties or not) ever shared with music creators, and if so, how? Put another way, what efforts were made to determine how music creators should share in these revenues? and; 

(iv) How do the provisions of the MMA (such as those that require mandatory accrual and turnover by the DMPs to the MLC of ALL unclaimed/unmatched royalties so that they may be researched for matching –and failing that effort– distributed according to the statutory provisions that protect music creator rights) apply to these royalties and Negotiated Agreements. 

@SGAWrites and Society of Composers & Lyricists Proposal for Secret Deals — Artist Rights Watch–News for the Artist Rights Advocacy Community

Press Release: @SoundExchange Praises European Union Court Decision On Equal Treatment for Creators

Sep 08, 2020

In Affirming “National Treatment” Principle, European Court of Justice Rejects Unfair Treatment of Music Creators Based on Nationality

Washington, DC – September 8, 2020 – SoundExchange praised the European Court of Justice’s ruling ordering European Union countries to treat music creators equally regardless of their nationality, recognizing this as an important milestone in the fight to ensure music fairness.

The ECJ ruling stemmed from a case in Ireland regarding whether US music creators should be paid royalties when their music is played on Irish radio or in places such as restaurants or bars. Some countries deny foreign music creators royalties for the use of their work even though royalties are otherwise paid to artists who are nationals of those countries.

The ruling has broad implications for music creators around the world. By adopting the principle of “national treatment” – that a country should provide foreign entities the same benefits and protections as it would its own citizens – the ECJ is setting the stage for all artists to be paid royalties when their music is played on EU radio broadcasts and public performances.

“Today’s decision by the European Court of Justice reflects a growing global recognition that countries should treat all music creators the same, regardless of their nationality. The ECJ reaffirmed equal treatment as a fundamental principle of how nations engage with one another,” said SoundExchange President and CEO Michael Huppe.

“We appreciate the leadership of Ireland’s RAAP in advancing the cause of fairness within the global community of music creators. We urge EU member states to quickly follow suit so that ALL musicians and labels, from whatever territory, can be properly respected for the benefits they provide beyond their home country,” added Huppe.

The ruling comes as the United States and United Kingdom undertake negotiations on a post-Brexit trade agreement. A broad spectrum of organizations representing artists, publishers, musicians and managers have urged negotiators to insist that national treatment be included in the final US-UK trade agreement.

Unfair treatment denies US music creators an estimated $330 million in direct global royalty payments a year. For more information on the Fair Trade of Music campaign, please go to www.fairtradeofmusic.com.

Press Release: @SoundExchange Praises European Union Court Decision On Equal Treatment for Creators — Artist Rights Watch

Guest Post: This is the Only Question for the Next Head of the Copyright Office

by Chris Castle

At some point in the coming days, there will be an announcement for the new head of the U.S. Copyright Office. I fully expect that everyone will have their litmus test for whether the new person (called the “Register” for historical reasons that have probably outlived their usefulness) should be appointed. The fact is that the Register is, if you ask me, a thankless job that has been filled by wonderful people for many, many years. It’s not a job that is really suited to anyone’s litmus test.

The reason it is not susceptible to a “factiness” approach is that the job is a balancing act between creators across all copyright categories, some of the biggest tech corporations in commercial history, and users (or as we call them, fans). When you review the past Registers all but the last two or so had one thing in common–they didn’t have to deal with corporations who were dedicated to the corrosion and eventual recasting of copyright into something that wasn’t what anyone previously thought of as copyright and so did not deserve the name.

Google Lobbyist and DNC Speaker Susan Molinari

Past Registers didn’t have to deal with corporations with trillion dollar market caps that have an endless lobbying budget. They didn’t have to deal with corporations who could get their lobbyist a speaking slot at the Democratic National Convention just in case you didn’t get the point. (Remember–AOC got 60 seconds.) Like the anaconda in the chandelier, they didn’t even have to say a word about the real issue.

Prior Registers didn’t have to deal with big tech corporations who hired prior employees of the Copyright Office to lobby–or at least advocate–against copyright.

True, there has been a revolving door at the Copyright Office before, but those hires were all devoted to preserving strong American copyrights which is also the mission of the Copyright Office to a large extent. They were not devoted to destroying copyright as we know it, distorting exceptions into giant loopholes, and looking the other way while major search corporations filed millions of “address unknown” notices for songs that started with the absurd premise “Google can’t find…”

So really there is simply one question for the next Register. “Do you support codifying Google’s terms of service in the law?” That’s a yes or no question. And it is absolutely serious with not a hint of sarcasm.

There are many signals that this is exactly what the anti-artist cognoscenti have in mind. Lawrence Lessig, Brewster Kahle, Pamela Samuelson, Christopher Sprigman, Fred von Lohmann, the EFF, Engine Advocacy, R Street Institute, Tech Freedom, Public Knowledge, the list goes on and on and on. All of them are dedicated to codifying Google’s terms of service in U.S. law. And that is where they will start if they capture the Copyright Office–they will use the springboard of the vast influence that the U.S. has on treaty negotiations to do the same in other countries and eventually the world.

You could throw a dart at a map of the world and you will hit a country where Google, Facebook, Amazon and the rest are trying to destroy copyright as we know it. Try South Africa, the European Union, Canada, Australia, New Zealand, India, Brazil. All are on the menu.

And by the way it’s not just the Register. Remember the Google Transparency Project (now the Tech Transparency Project) identified through public records the vast influence that Google and other FAANGS companies had over the Obama White House (Facebook, Amazon, Apple, Netflix, Google and Spotify). (Remember President Obama’s #POTUSPlaylist? Not an Apple playlist, a Spotify playlist.) And who has post-term deals from Netflix and Spotify? Just sayin.

Which multinational corporation had more meetings at the White House than any other? Just sayin.

Roger McNamee, long time Silicon Valley venture capitalist and member of the band Moonalice summed it up in a recent Wired opinion post as an open letter to Vice President Biden:

One of the policy areas that demands a new approach is technology. New technologies like facial recognition and artificial intelligence have been plagued by racial and gender bias, with particular harm in areas like law enforcement, job hiring, and mortgage applications. Internet platforms like Facebook, YouTube, Instagram, and Twitter have amplified hate speech, disinformation, and conspiracy theories, undermining our politics, our pandemic response, and the safety of our citizens….

Imagine my disappointment last week when The New York Times reported that President Obama had suggested that you work with two members of the Silicon Valley establishment, former Google CEO Eric Schmidt and LinkedIn founder Reid Hoffman. I know both men well. They are brilliant and very successful. Their money and expertise may be valuable to your campaign, but I hope you will not turn to them for policy guidance. They were architects of the culture and values that produced the problems I described above.

Let’s be clear–this is not about politics.  I know some of your political knees are jerking right about now.  But be clear–this is about survival and these are facts.  As Roger McNamee says–and he’s hardly the only one saying this–we all have to do everything we can to fight back Silicon Valley’s government takeover.  You don’t have to be for or against any particular candidate to understand that Google & FAANGS once had pretty much all they ever wanted in the wildest dreams of any lobbyist or swamp creature.  They liked that control over the administrative state and they mean to have it again–if they ever really lost it.

Also remember that the FAANGS have been vastly enriched by the COVID crisis while artists have been weakened like never before.  Now is the time that the anaconda in the chandelier is most likely to strike and crush its prey.

So let’s ask the only question that’s relevant of the next Register:  Do you intend to codify Google’s terms of service.  Yes or no.  And take good notes on the answer because they need to be held to it.  It is an absolutely serious question, particularly now.

Copyright Office Regulates The MLC: Selected Public Comments on the Copyright Office Black Box Study: The DLC Spills the Beans, Part 3

[Read Part 2 here.  This is the last of 3 parts]

The services tell us in their Copyright Office comment that the whole point of the Music Modernization Act was this (largely secret) deal to get them a new retroactive safe harbor so their massive infringement couldn’t be stopped by songwriters.  (That’s their third statutory safe harbor counting DMCA and Section 230.)  What do you think that MMA safe harbor is worth to them to avoid what they call “ruinous litigation”?

Let’s use Spotify’s market cap as a proxy for the value of the safe harbor–imperfect, yes, but at least it is transparent unlike anything else having to do with Title I of the MMA.

SPOT Safe Harbor Value

Around October of 2018 when the MMA was signed into law, Spotify traded at $189.  A recent closing price for SPOT is $268.  Is it fair to say that the MMA was the rocket fuel that made Daniel Ek a billionaire?  Not entirely.  You can see from the graph that Spotify actually broke through a $190 per share support level to the downside right after the MMA was signed and bounced around below that price for a year or more.

The clear driver of Spotify CEO for Life Daniel Ek’s wealth and profiteering is the COVID virus.  Make no mistake, human misery–not the MMA safe harbor–is what provided the rocket fuel for Spotify’s 2020 growth.  In fact, the same rocket fuel of misery seems to have benefited each of the exploitative cohort as this graph shows using Live Nation as a proxy for the collapse of touring:

COVID MISERY INDEX 8-22-20

So it could be said that the entire “ruinous litigation” argument from the DLC is simply so much bullshit that these companies fed to the MMA negotiators by the plateful.  What is not bullshit, however, is that the one thing the negotiators could have scored that they didn’t is a waiver of the services appeal rights in the Phonorecords III rate setting decision.  This is the appeal that the services recently won when the appeals court handed the negotiators heads to them.  There could also have been a settlement since they seem to like those so much.  The negotiators didn’t do either.  We’ll see how the do-over turns out, but one thing we know is that there will be millions in legal fees that songwriters will have to eat one way or another that could easily have been avoided.

What is also not bullshit is the other side of the MMA transaction:  The loss to songwriters of this heretofore secret deal.

You will note that none of the music services appear to have paid out jack in the way of newly matching the previously “unmatched” in the years since the signing of the MMA. Why?  Because the MMA negotiators did not require any interim payments of matched funds or any public reconciliation of black box to matching efforts.  No, no, the first time the black box gets disclosed publicly is when those funds are paid to the MLC, not to the songwriters who earned the money.  Round and round and round it goes, and where it stops, nobody knows.

If you believe as we do that the services have not lifted a finger to increase their matching efforts (and based on the DLC’s disclosures seem to have already paid out pre-MMA black box on a market share basis), you will better understand why we think this was a colossally terrible deal for songwriters.  You will also understand why this part of it was largely kept secret or downplayed.

The Eight Mile Style complaint against Spotify and the Harry Fox Agency (which is the same Harry Fox Agency that is now going to be handing your royalties for The MLC, how curious) has an informative passage about the timing of this retroactive safe harbor:

In addition, the retroactive elimination of the right to profits attributable to infringement, statutory damages, and attorneys’ fees under the MMA is an unconstitutional denial of substantive and procedural due process, and an unconstitutional taking of Eight Mile’s vested property right, and this Court should so declare.

It is settled law that an infringement claim is a property right that vests in a plaintiff the moment the infringement occurs. The Bill that ultimately became the MMA, written by the NMPA, with input from Spotify, became law in October 2018, but provides retroactively that a plaintiff who did not file an action by December 31, 2017, could lose any right to profits attributable to infringement, statutory damages, and attorneys’ fees if successful in a case against Spotify or other DMPs of interactive streams. On information and belief, the MMA, according to the NMPA’s own announcements, lobbyist spending, and congressional testimony on Capitol Hill, was jointly crafted by members of the NMPA (whose three top markets shares and dues-paying affiliated companies own equity in Spotify) and Spotify, DiMA, and other interactive streaming companies.

They knew what they were doing….

[W]ith the removal of these remedies, it cleared the last hurdle for Spotify to go public, thereby reaping tens of billions of dollars for its equity owners, including the major music companies as mentioned above. The unconstitutional taking of Eight Mile’s and others’ vested property right was not for public use but instead for the private gain of private companies.

The reference to timing on Spotify “going public” means Spotify filing their “DPO” to sell stock on the public markets–the really big money.  That’s relevant to the MMA negotiation because the MMA bill was introduced on December 21, 2017.  Spotify filed a confidential paper with the Securities and Exhange Commission on January 3, 2018 and Spotify’s stock started trading on April 3, 2018.  The MMA allowed them to show the markets that they were doing something about their systemic copyright infringement problem and gave fuel to the specious argument that lawsuits against them were merely opportunistic gotcha lawsuits and not a bellweather for their utter incompetence and cavalier treatment of songwriters.

Why is this timing important?  Because the MMA was filed on December 21.  What happened on December 22?  Congress closed for the holidays and would not reopen until after January 1, 2018.  That meant there would not be an official version of the bill until after January 1, 2018, the deadline to sue before the retroactive safe harbor would eventually take effect.  Various copies leaked, but since the entire music industry was also shut down for the holidays, it was unlikely that any songwriters would see it, particularly because we can’t find that their so-called “representatives” ever brought it up in any public messaging before the January 1 deadline had passed.

Do you think that timing is a coincidence?

As Eight Mile Style tells us:

The proof is in the pudding: Spotify was sued many times prior to December 31, 2017, for similar acts of copyright infringement as alleged herein, but not once since December 31, 2017. This is because the Bill that ultimately became the MMA first publicly leaked shortly before December, 2017, leaving music publishers with little or no time to investigate or file a lawsuit for infringement, even if they somehow became aware of the Bill at that time.

It just happened that Wixen Music Publishing was already on a war footing from opposing the various Spotify settlements and was able to easily pivot to filing its own lawsuit against Spotify before the December 31, 2017 deadline in a move worthy of General Patton at Bastogne.  But Wixen was alone.  No one else probably even knew the deadline was passing or what it meant.

The value of what the “negotiators” gave away cannot realistically be measured for the reason that Eight Mile Style clearly states, which is also the same reason that the retroactive safe harbor is unconstitutional:

The only practical or realistic remedies in these cases is the statutory damage remedy, and profits attributable, together with the ability to receive attorneys’ fees, and the drafters of the MMA knew it. The elimination of these remedies takes away from Eight Mile and others who may be similarly situated any practical or realistic remedy, immunizes complying DMP’s from suit, and should be declared an unconstitutional deprivation of due process and a taking of a vested property right.

So what’s the value that songwriters gave up in the MMA?  Wixen sued for $1.6 billion.  You figure it out.

Still Down by 50%, The Problem With Streaming 2020 Edition

There’s absolutely nothing wrong with music streaming, except the economics. In the chart above from the RIAA it’s painfully clear the record industry is still down by over 50% of the revenues achieved at the peak of the business in 1999. So despite what people might like to say about the value of streaming, the actual facts beg to differ.

We recognize that at it’s worse the industry was down by almost two thirds of the peak, and gains are being made. However, it’s important to have clear perspective in these conversations if we are to address some of the challenges with the current economic model.

The fundamental problem with streaming is that revenue does not grow with consumption. Revenue only grows with subscriptions or advertising revenue. Once that revenue is capped, everyone from Taylor Swift to indie garage bands are splitting that same revenue which is divided by the total number of plays for that specific revenue period. This also means hit records don’t add overall revenue for anyone, they just get a larger piece of the revenue that is available.

When a major artist has a release (like Taylor Swift for example) everyone’s streams are worth less. This is because Taylor generates so many plays/streams that the pie is now cut into much smaller slices. Of course, Taylor gets the majority of those slices so she gets the most money from the pool of revenue that is available.

In other words, the pie doesn’t grow with consumption, it can only be cut into smaller pieces. The more overall plays there are, the smaller the slices get for everyone. This isn’t the fault of the superstar artist, but rather it’s a fundamental flaw in the design of the business model.

The only way for streams to generate more revenue for all artists is to create solutions that generate more revenue for the streamers as well. The easiest and most common sense solution is an actual per stream rate which would allow consumption to drive revenue. It’s hard to believe such a win/win would be controversial, but here we are.

 

 

Copyright Office Regulates The MLC: Selected Public Comments on the Copyright Office Black Box Study: The DLC Spills the Beans, Part 2

[Continued from Part 1]

The DLC’s comment to the Copyright Office makes it clear that there is a substantial likelihood that the services are holding substantial monies in the black box—substantial amounts of other people’s money.  Probably some—or a lot—of your money.  The comment suggests more strongly and openly than we have seen before that not only are the services holding more money than they intend to acknowledge that they owe, they know they are and they intend to get away with it.  And as our friend Guy Forsyth has written in his classic song Long Long Time, nothing says freedom like getting away with it.

The DLC’s comment makes it clearer than ever that the whole point of Title I was for the services to get away with it under the guise of doing you the huge favor of paying you the money that they already owe you in return for “stakeholders” acting under color of authority to give away the few rights songwriters have.  And we’d bet you didn’t even know it happened.  Yet you are going to be bound by the deal these people made who don’t represent you and had no actual authority to make any deal on your behalf.  The DLC tells us:

This was the heart of the deal struck by the stakeholders in crafting the MMA: to provide legal certainty for DMPs, through a limitation on liability, in exchange for the transfer of accrued royalties. That is a crucial point for the Office to keep in mind as it crafts rules in this space. If the regulations make it less likely that a DMP will be able to rely on that liability protection when it needs iti.e., if it increases the risk that a court would deem a DMP to not have complied with the requirements in section 115(d)(10)—a DMP could make the rational choice to forego the payment of accrued royalties entirely, and save that money to use in defending itself against any infringement suits.

Read that last clause again:  “a DMP could make the rational choice to forego the payment of accrued royalties entirely, and save that money to use in defending itself against any infringement suits.”

The DLC is threatening to use your money to cover the costs of defending itself against lawsuits yet to be filed.  Perhaps that assertion proves too much—if the deal was that the services would use your money to buy themselves a safe harbor, if they don’t pay you the money then they don’t get the safe harbor?

Presumably they would also seek to get their assessment money back from The MLC, too.  Which of course gives them even more leverage now that the Fox is in the henhouse.  Given that The MLC seems to be teetering on the edge of a complete meltdown and seems to exist for the sole purpose of driving signups to HFA, maybe songwriters should be saying, if the DLC threatens to abandon The MLC can we please get that in writing?  They should understand that threatening to withhold money from The MLC is pushing on an open door for most songwriters who are not part of the insider cabal.

It’s pretty obvious from this comment that there’s an imminent danger that the monies owed by the services for the black box are likely to evaporate if something isn’t done to preserve the status quo.  You couldn’t ask for a more clear and compelling reason that the concern is justified.  Plus, what the services complain of is that the Copyright Office’s proposed regulations would make payments more accurate and that they might end up matching more than they already have.

They couldn’t be clearer:

DMPs supported enactment of the MMA fully intending to pay over any accrued royalties still on their books, with the assurance that the limitation on liability the MMA establishes in exchange will protect them from ruinous litigation.

Or said another way, getting caught.  And that’s what they really want to avoid.  One person’s “ruinous litigation” is another person’s justice.  Here they say it yet again:

The Copyright Office has proposed a regulation that requires DMPs to provide a “clear and detailed explanation” of any difference between “the total royalty payable” as reported on the cumulative statement of account (which reflects the royalties for all unmatched usage) and the “royalties actually transferred to the mechanical licensing collective.” We agree with this proposal, with one minor modification: we would suggest changing the phrase “total royalty payable” to “total royalty reported,” to avoid any suggestion that the amount reflected on the cumulative statement of account is necessarily “payable” to the MLC. DLC otherwise agrees with the Office that the MLC is entitled to such an explanation when there are such discrepancies.

The difference between “payable” and “reported” is the difference between what a service in fact owes compared to what they say they owe.  Remember, none of these statements will have been subject to a royalty compliance examination (or “audit”) at the time, if ever, that the money is paid over to The MLC.

Plus, we have absolutely no confidence that The MLC is going to be able to process the trillions of transactions involved which will inevitably lead to a huge black box problem that no one seems to be in a hurry to solve.  So the Copyright Office is exactly right to seek as much clarity as possible on the sums paid over to The MLC.  The balance of hardships tilt’s decidedly in the favor of songwriters.

As the House Judiciary Committee stated:

Testimony provided by Jim Griffin at the June 10, 2014 Committee hearing highlighted the need for more robust metadata to accompany the payment and distribution of music royalties….In an era in which Americans can buy millions of products via an app on their phone based upon the UPC code on the product, the failure of the music industry to develop and maintain a master database has led to significant litigation and underpaid royalties for decades. The Committee believes that this must end so that all artists are paid for their creations and that so-called ‘‘black box’’ revenue is not a drain on the success of the entire industry.

It’s obvious now that the only way to save the black box from total collapse is to have the services disclose immediately how much they are holding and for which songs, artist name and track name if nothing else.  There’s a real danger in not doing that—and the DLC is telling us clearly what their intentions are in a conclusive statement that raises serious questions.